KiwiSaver: Important versus urgent

by | May 12, 2022 | Investment | 0 comments

President Eisenhower’s renowned principle, known as the Eisenhower Matrix, uses levels of urgency and importance to prioritise workload. Tasks that are both important and urgent must take first priority. If a task is neither urgent nor important it should be shelved or deleted from your task list. This is an excellent tool for efficiently and effectively managing your day-to-day life – and it can also be applied to how you approach investment.

The Eisenhower Matrix helps you to think about priorities and goals and determines which of your activities are important and which are, essentially, distractions or noise. The same principle should be applied when thinking and acting with your KiwiSaver investment.

For most, KiwiSaver is a long-term investment. Even if you are turning 65 today, some of this investment could be in place for at least another 20 years. Having a strategic plan in place for the lifetime of your KiwiSaver investment is vital for its long-term success.

So, what is important?

  1. Planning long term
  2. Making the most from your contributions
  3. Making sure to collect all the benefits on offer
  4. Getting good advice

... and what is noise?

  1. Looking at your account balance every day
  2. Acting impulsively on bad news
  3. Taking advice from well-meaning but uneducated (in a financial sense) people
  4. Letting emotions take over control of investment making decisions

Strategies for KiwiSaver Long Term Success (pre 40)

For the young, use your KiwiSaver investment to save for retirement as well as helping with the deposit on your first home. Key points to remember:

  • If you are looking to purchase your first home within the next 6 to 12 months, it can be a wise move to switch your KiwiSaver investment into a cash or conservative fund to preserve the current value. A sudden drop in value just as you are withdrawing for your first home could reduce your deposit amount and jeopardise the purchase.
  • Apart from the first home purchase, think long term growth for your KiwiSaver investment. Volatility (ups and down in the investment markets) can be your friend. A decline in your KiwiSaver investment value at any time can feel emotionally uncomfortable, but over time history shows that markets – your KiwiSaver investment included – will bounce back and perform well for you.
  • ‘Dollar Cost Averaging’ (investing regular amounts) can lessen the effect of ups and downs with your investment. This strategy works well in the early years of investing when you are contributing on a regular Have a look at this video for a simple explanation on ‘Dollar Cost Averaging’:

https://www.youtube.com/watch?v=QDiq5D7KOHw

  • Increase your regular contribution. An increase from 3% to 4% KiwiSaver on a salary of $50,000 is only $10.00 a week (about two coffees). This could equate to thousands of extra dollars at retirement time. Remember also, each time you get a pay rise, both your KiwiSaver contributions and your employers KiwiSaver contributions will rise accordingly.
  • A clear example of this can be found by using the ‘Sorted’ online calculator. Using this, you can see that a 30-year-old with an income of $50,000, retiring at 65, will increase their KiwiSaver balance by over $29,000 at age 65 by just increasing their KiwiSaver contribution from 3% to 4%:

https://sorted.org.nz/tools/kiwisaver-calculator/

  • Always top up your KiwiSaver contribution to at least $1,043 by the end of June each year to receive the maximum government contributions of $521.43. This is the easiest money you will ever make.

Strategies for KiwiSaver Long Term Success (past 65)

For the mature investor, your KiwiSaver investment does not need to cease at age 65. While the strategy can change slightly the intention is still to maximise the benefits from your hard-earned savings while also enjoying income additional to your NZ Super entitlements. Remember NZ Super is not means-tested like other state benefits.

  • If you are still working, keep contributing to KiwiSaver. While most employers will generally keep contributing (although there is no compulsion for them to do so), the government will stop their contribution.
  • If you are retired and require money from your KiwiSaver investment to top up your lifestyle spending, there are several strategies you could apply.
  1. Set up a regular (fortnightly, monthly, or quarterly) withdrawal programme for the amount which will fulfil your needs.
  2. Withdraw a lump sum at the beginning of the year which will meet your spending requirements for that year.
  3. Use it for special purposes such as an overseas holiday, car purchase or home improvements, and withdraw only what you need at the time.
  • Unsure on your spending needs? Use the ‘Bucket’ approach illustrated below to allocating your KiwiSaver investments in different sectors to continue to maximise the long-term potential.

Break up your investment into different components.

Conservative fund. This is for possible spending requirements over the next 1 to 3 years, such as topping up everyday bank accounts, vehicle updates or overseas trips (when Covid 19 allows). Withdraw only when you need to, for those purposes.

Balanced fund. This strategy is mainly to preserve the real value of your KiwiSaver investment over time (to keep up with inflation). You will, from time to time, transfer some money into the Conservative fund for future spending needs. This time frame could be between 3 to 10 years.

Growth fund. This has a time frame of 10 years plus. The strategy here is to boost the overall return of your KiwiSaver portfolio to keep ahead of inflation. This will be the last money (if at all) you will use. The returns will be more volatile than the ‘Balanced’ and ‘Conservative’ part of your KiwiSaver investment but over time, history tells us, this should give the best return.

Above all, it's important to think long term…

The goal is to enjoy your retirement, to have resources to fulfil all the desires on your spending ‘wish list’, and to enjoy the peace of mind that comes with a well-planned KiwiSaver investment.

George Hill has provided this Sage Advice article. George is a KiwiSaver advice specialist with over thirty years’ experience advising clients on investments, superannuation and, since its inception, KiwiSaver. He provides advice to individuals, employers and their employees and is recognised by his peers as the man to talk to about regular contributory investments.